GCC economies pro­jected to grow ro­bustly

The oil ex­port­ing coun­tries in the Mid­dle East, par­tic­u­larly the Gulf Arab coun­tries, are pro­jected to grow ro­bustly dur­ing the cur­rent year, the In­ter­na­tional Mone­tary Fund said in its lat­est re­gional out­look re­leased.

The IMF pro­jec­tions show that the growth of GCC economies are expected to mod­er­ate in 2013 largely due to the po­ten­tial pull­back from the ex­pan­sion­ary fis­cal poli­cies fol­lowed by the re­spec­tive gov­ern­ments.

"In the Gulf coun­tries, growth re­mains ro­bust, sup­ported by ex­pan­sion­ary fis­cal poli­cies and ac­com­moda­tive mone­tary con­di­tions, but is expected to slow from 7.5 per cent in 2011 to 3.25 per cent in 2013 as oil pro­duc­tion reaches a plateau," said Masood Ah­mad, Di­rec­tor of the IMF's Mid­dle East and Cen­tral Asia Depart­ment.

The IMF ex­pects oil price to re­main above $100 per bar­rel in 2012-13. As a re­sult, the oil ex­porters' com­bined cur­rent ac­count sur­plus is an­tic­i­pated to re­main near its his­toric high of about $400 bil­lion in 2012. This has helped gov­ern­ments to re­spond to grow­ing so­cial de­mands by in­creas­ing ex­pen­di­ture on wages and salaries, which rose dra­mat­i­cally in most oil ex­porters in re­cent years.

While the ex­pen­di­tures have gone up dra­mat­i­cally, in many of the GCC coun­tries their bud­get breakeven oil prices have risen dra­mat­i­cally threat­en­ing po­ten­tial fis­cal im­bal­ances in the fu­ture if the oil prices are to de­cline from the cur­rent lev­els.

Al­though many of the oil ex­porters have ac­cu­mu­lated re­serves to with­stand short-run oil price volatil­ity, a sus­tained drop in oil prices re­sult­ing from a fur­ther slow­down in global eco­nomic ac­tiv­ity re­mains a risk to guard against.

For ex­am­ple, a 10 per cent drop in oil prices would bring down the oil ex­porters' com­bined cur­rent sur­plus by about $150 bil­lion. Stepped-up spend­ing has in­creased the vul­ner­a­bil­ity to oil price de­clines in case of fur­ther de­te­ri­o­ra­tion in the global econ­omy.